Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
There are 11 articles discussed today 'behind the wall'.
The final four articles discuss the over-extended housing market in the UK.
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Abenomics – What Could Possibly Go Wrong? (Edward Hugh, Credit Writedowns) Edward High has contributed to GEI. A number of projections by the Bank of Japan (BoJ) on the direction of the Japanese economy are diametrically opposed to those of bank analysts in other parts of the world. One example is inflation which BoJ projects to rise to 2% in 2015 (excluding consumption tax hike) while Credit Suisse projects a decline to 0%. While the government and the BoJ keep talking of moving toward higher wages, real wages are continuing a four-year decline, contracting by almost 4% year-over-year at the latest reading. It is not a question of what could go wrong – rather what isn’t actually going wrong?
Live Blog: Apple iPhone 6 Event (Brad Stone and Peter Burrows, Bloomberg Businessweek) Apple's iPhone 6 will be cheapest in Japan when pre-orders start 12 September, more than 30 percent less than France, which is the most expensive country according to Bloomberg calculations based on prices posted on the company's local websites. The phone will cost 67,800 yen (£394) in Japan compared with 709 euros (£568) in France. The U.K. is the third most expensive with the phone costing £539.
Europe has to do whatever it takes (Martin Wolf, Financial Times) The capacity of the people of Europe to tolerate the high unemployment and deep slumps of austerity "cannot be unlimited".
The Simple Analytics of Helicopter Money: Why It Works – Always (Willem Buiter, WEconomics E-journal) The title is a lie. No, not the way you may think at first. The lie is in one word: simple. On our first reading it seems that the paper constructs a complex modeling structure to represent what is empirically observed and easily understood from those observations: the sectoral balances model developed by Wynne Godley. Perhaps we would see more value in this paper if it included graphs of variable behaviors. As it stands it seem merely to be an effort to explain how a complex DSGE (dynamic stochastic general equilibrium) model can be developed that is consistent with the observations fitting the straightforward Godley construct. Our cynical impression of this paper is that it is another effort to display how DSGE can be contrived for any purpose desired. Perhaps we need to read it more carefully? See next article for more about Godley.
Intro to Godley Economics: Sectoral Balances (Fred Bethune, Stop Me Before I Vote Again) This is a novel exposition of the Wynne Godley model, accompanied by a good discussion of the simple equations defining observed accounting-type relationships of assets, liabilities and cash flows.
Carney Can’t Escape Housing as Debt Colors BOE Policy (Neil Callahan, Bloomberg) Bank of England (BoE) governor Mark Carney is in a tough spot: Inflation is moving faster than wages, the British are over their heads in debt (90% of it in residential mortgages) and purchase cost for housing now reaches nearly nine times annual earnings for first-time home buyers. Although UK household debt as a percentage of personal income has fallen from 170% in 2007 to 140% today, it is still the highest for the G-7. The BoE must be cautious with interest rate hikes because the UK consumer has little margin to absorb added debt carrying costs (2/3 of mortgages are variable rate); too aggressive with hikes and the consumer could pare spending, even for essentials such as food and clothing. And overly stretched mortgagors could start defaulting at a much higher rate. See also final three article discussions below.
Halifax House Price Index for August 2014 (Lloyds Banking Group) The Halifax HPI is the oldest full-country housing price data base for the UK. Home sales increased by 16% year-over-year for the three months ending July 2014; prices were 9.7% higher (y-o-y) for the three months ending August 2014.
UK house prices will plummet: look at this scary chart (Dominic Frisby, MoneyWeek) This is an assessment of a coming crash in UK housing as of 03 November 2009. See the following article for the "adjustment" that occurred, rather than a "crash". Question: Has it been a crash deferred?
Nationwide average house prices adjusted for inflation (Housepricecrash.co.uk) The following graph is for real prices UK-wide (compare to blue line for nominal prices in immediately previous article). The real trend over the 40 years of the graph averages 2.9% increase per year and the current average price is £13,700 (7.4%) below trend. Note the implication: House prices may be rising below trend but the cost of housing relative to income is rising then the historical trend is probably not consistent with the 'new normal' economy.
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